Select Committee on Business and Enterprise First Report

1  Introduction

1.  On 28 July 2008 the Business and Enterprise Committee published its Eleventh Report of Session 2007-08, Energy prices, fuel poverty and Ofgem, the output of a major inquiry conducted during the first half of the year.[1] In the cabinet reshuffle announced on 3 October the Prime Minister created a new Department of Energy and Climate Change, combining the Climate Change Group from the Department for Environment, Food and Rural Affairs (DEFRA) and the Energy Group from the Department for Business, Enterprise and Regulatory Reform (BERR). The House has restructured the departmental committee system in response to the creation of the new department, and from January 2009 responsibility for scrutinising energy policy will move from our Committee, to the new Energy and Climate Change Committee.

2.  We timed our original Report to ensure that Ofgem could take account of it in its own energy supply probe, the initial findings for which were published on 6 October 2008.[2] The aim of this short Report is to draw on our experience to highlight some of the areas to which we believe our successors will need to pay particular attention.

3.  In addition to Ofgem's work, there have been a number of other important developments within the energy sector in the last five months:

  • During July and August the 'Big 6' energy retailers raised their gas and electricity prices by double-digit percentages for the second time in 2008;
  • On 11 September the Government announced a £1 billion package of additional support for those in fuel poverty. Much of this will be funded by the 'Big 6' energy companies and, for the first time, the independent generators. Subsequent figures have shown a one million increase in the number of fuel-poor households, to 3.5 million in 2006;
  • On 24 September EDF agreed a £12.5 billion takeover of British Energy. Centrica has also announced that it is in talks to take a 25% stake in the subsidiary formed by the merger;
  • On 25 October Electricity4Business, one the few small suppliers to the SME market, went into administration. They were followed on 3 November by another significant small supplier, BizzEnergy;
  • On 26 November the Energy Bill was enacted. It includes provisions to allow banding of the Renewables Obligation by technology and establishment of a framework for funding the decommissioning of future nuclear power stations. Late amendments to the Bill also paved the way for the introduction of feed-in tariffs for small-scale renewables, further incentives for renewable heat, and a national roll-out of smart meters for households; and
  • Since reaching a peak of $147 per barrel in early July, the price of oil has collapsed to around $40-45 as expectations of demand have plummeted.

4.  These events have taken place within the wider context of a global financial and economic crisis in which most advanced economies have now entered recession with little likelihood of an upturn before 2010. Accordingly, we have taken oral evidence from Ofgem and the Minister of State at the new Department of Energy and Climate Change (DECC) to gauge the wider implications of these developments for the UK's energy sector in the coming years. We are grateful to those who have contributed to the evidence gathering for this inquiry. We also wish to thank all those who have participated in the various energy-related inquiries conducted by the Committee during the current Parliament.

1   House of Commons Business and Enterprise Committee, Eleventh Report of Session 2007-08, Energy prices, fuel poverty and Ofgem, 28 July 2008, HC 293 Back

2   Ofgem, Energy Supply Probe-Initial Findings Report, 6 October 2008 Back

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Prepared 15 December 2008